Indian shipping lines stand to gain
from higher iron-ore exports to China as rebuilding from Japan’s
earthquake signals a $30 billion jump in demand for steel.

The likely rise in shipments from India, the mineral’s
third-largest exporter, to China, the biggest steelmaker, is
among reasons to buy shares in Shipping Corporation of India
Ltd. and Great Eastern Shipping Co., says Mumbai-based Centrum
Broking Pvt. Ltd. About 10 percent of a possible $300 billion
recovery bill in Japan may be spent on steel products, according
to Australia & New Zealand Banking Group Ltd.

“The reconstruction itself will have a positive impact on
Indian shipping companies in the next three to six months,”
said Srividhya Rajesh, a Chennai-based fund manager at Sundaram
Asset Management Co. Ltd., which oversees $3.2 billion and added
to its funds’ holdings in Great Eastern in April. “The
improvement in freight volumes will give better earnings to
investors in the near term.”

A doubling in exports of items ranging from raw materials
to pharmaceuticals is part of an Indian government strategy for
boosting trade to $1.1 trillion by 2014, taking freight volumes
to at least 1.3 billion metric tons from 574 million last year.
Shipments of iron ore will overcome higher export taxes, Credit
Suisse Group AG said.

Shares in the majority state-owned Shipping Corp. may rise
about 25 percent to 134 rupees ($3) in the next 12 months, based
on target prices from Siddhartha Khemka, an analyst at Centrum
Broking, one of India’s largest stock brokers. Mumbai-based
Great Eastern may surge 37 percent to 401 rupees, he said.

Rising Traffic

“The demand for iron ore will increase when Japan starts
rebuilding and there will be an increase in freight movement
since India is one of the major exporters,” Khemka said in an
interview. Efforts by the government to boost overall Indian
exports “will also be positive for all shipping firms.”

Centrum isn’t involved in any deals with either of the
businesses it’s recommending, according to Khemka.

An improvement in tanker cargo rates is set to bolster
revenue at Shipping Corp. and Great Eastern, he wrote in an
April 7 research note. Indian shipping businesses also have a
chance to expand their fleets at “lower costs,” he said.

The South Asian nation can meet shorter term increases in
demand more quickly than rival producer Brazil because of
smaller shipping distances to China, said Sunil Thapar, director
for bulk carriers at Shipping Corp. It can match the voyage
length from Australia, he said.

Faster Sailing

“There will be increased demand from rebuilding in
Japan,” said Thapar. Shipping Corp. intends to add six 54,000-
ton carriers to India’s biggest fleet and deploy them on routes
to China beginning July, partly because of the expected rise in
iron-ore exports, he said.

Sailing times from ports on India’s Bay of Bengal coastline
to China, the world’s biggest consumer of iron ore, range from 9
days to 17 days, less than the monthlong trip from Brazil,
according to data from Shipping Corp. and industry consultant
Mantrana Maritime Advisory Pvt., which are both based in Mumbai.

Brazil last year exported 308 million tons of the raw
material used to make steel, while Australia sold 403 million
tons to buyers abroad, the Australian Bureau of Agricultural
Resource Economics and Sciences said in a report.

In the longer term, the major growth in iron-ore supply
will come from the higher quality deposits in Australia and
Brazil, according to the report.

Short of Demand

Global seaborne supply of iron ore will fall about 15
million tons short of demand this year, compared with an 11
million-ton surplus in 2010, according to Macquarie Group Ltd.
The Sydney-based bank predicts Chinese spot prices will probably
jump more than 15 percent this year.

Japan’s magnitude-9 temblor and ensuing tsunami on March 11
caused as much as 25 trillion yen ($310 billion) of damage,
according to government estimates, and disrupted steelmaking in
the second-largest producer of the alloy.

As it rebuilds, Japan’s consumption of steel may climb 8
percent annually in the next three to five years, ANZ said. At
least half would be imported.

“Benchmark that against virtually flat growth in the last
10 years” in Japanese steel production, said Mark Pervan, the
Melbourne-based head of commodity research at ANZ. “We are
talking an additional 10 million tons of steel each year.”

Export Tax

China’s crude-steel output may gain 12 percent to 700
million metric tons this year, according to government
forecasts, higher than an earlier estimate of 660 million tons.

In India, the government aims to discourage some overseas
ore sales as domestic steel demand climbs, spurred by rising
incomes and Prime Minister Manmohan Singh’s drive to pour $1
trillion into upgrading transport and power networks ranked
below those of war-ravaged Ivory Coast.

Export taxes on all grades of Indian iron ore rose to 20
percent on April 1, from 15 percent for iron-ore lumps and 5
percent on fines. High-value pelletized ore was exempted.

“We do not expect any impact on Indian iron-ore exports as
a result of the Indian tax changes until spot prices drop by at
least around $30,” said Melinda Moore, director and global
commodities coordinator at Credit Suisse Equities.

It remains profitable to sell the material overseas given
current spot prices, she said. The price of 62 percent-content
iron ore delivered to Tianjin port in China has risen about 5
percent this year to $178.5 per metric ton, data from Steel
Business Briefing shows.

Brazil, Australia

China imported 59.5 million tons of iron ore in March, with
18 percent of that coming from India, 23 percent from Brazil and
36 percent from Australia, customs data shows.

Aside from the export tax, Indian shipping companies and
their counterparts around the globe are also contending with the
impact on freight rates of a glut of carriers.

Companies ordered too many ships in 2007 and 2008, when the
Baltic Dry index, a measure of commodity shipping costs,
averaged 6,730 points. The gauge has slumped 67 percent in the
past year to 1,291 points as of May 16.

While that has contributed to declines of 36 percent in
Shipping Corp.’s shares and 3 percent in Great Eastern in the
past year, the slide opens up a contrarian chance to buy
shipping stocks, said Swati Kulkarni, a fund manager at UTI
Asset Management Co., which oversees $14.9 billion from Mumbai.

“Shipping stocks offer a high dividend yield and asset
prices are somewhere near the bottom post the 2008 recession,”
she said. “We find them attractive from a long-term
perspective. If one has a horizon of two years, it makes sense.”

UTI Asset Management’s funds owned about 2.5 percent of
Great Eastern as of April 30, according to data compiled by
Bloomberg. Freight rates may recover from 2013, said Chetan Kapoor, an analyst at IDBI Capital Market Services Ltd. in
Mumbai.

“India’s shipping sector is attractive on a long-term
basis because the economy is expanding and there is a lot of
trade,” said Kapil Yadav, a Mumbai-based analyst with Dolat
Capital Market Pvt. “Over a three-year period, I see rates also
improving as new vessel addition might dry up.”